Changes in laws to tackle bad loans

New Delhi: The government today approved amendments to the SARFAESI and debt recovery acts to enable banks to effectively deal with the menace of bad loans and also encourage them to disburse credit freely to home and corporate loan seekers.

The Cabinet approved the introduction of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, in the next Winter Session of Parliament, Information and Broadcasting Minister Ambika Soni told reporters here.

The Bill seeks to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act so as to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions through the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011.

"The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, etc, without fearing for recovery, thus bringing about equity," she said. Further, she said, "Mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information."

The suggested amendments would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of non-performing assets, she said.

Soni noted that the banks and financial institutions were facing numerous problems in recovery of defaulted loans on account of delays in disposal of recovery proceedings. The government, therefore, enacted the RDBF Act in 1993 and SARFAESI Act in 2002 for the purpose of expeditious recovery of non-performing assets (NPAs) of the banks and FIs, she added.

Although these two acts have helped in reducing NPAs, banks have sent certain suggestions for further strengthening of secured creditor rights, she said. According to Department of Financial Services Secretary D K Mittal, four sections of the RDBF Act, 1993, and six sections of the SARFAESI Act, 2002, will be amended.